Inflation in Pakistan to soar up to 6%, growth to remain at 3% in FY26: ADB

ISLAMABAD: The Asian Development Bank (ADB) on Tuesday said that it expects Pakistan's real GDP to growth to stand at 3% in Fiscal Year 2025-26 (FY26) and has warned of increase in inflation up to 6%.

In its Asian Development Outlook (ADO) September 2025, the lender credits improved macroeconomic conditions contributed to an uptick in growth in fiscal year 2025 (ended 30 June 2025), underpinned by increased investment driven by continued policy reforms and economic stability.

"Pakistan's growth prospects remain positive. However, the country continues to face structural challenges, compounded by recurring disasters such as the recent floods," said ADB Country Director for Pakistan Emma Fan.

"In this context, consistent reforms and policy implementation are essential for reinforcing policy credibility, sustaining economic momentum, and enhancing the country’s resilience," she said.

The lender further pointed out that the economic reform has progressed considerably under the International Monetary Fund (IMF) Extended Fund Facility arrangement that began in October 2024 and stressed that policy consistency and climate resilience remain vital to maintaining the growth momentum.

It also warned that the downside risks to the outlook remain high.

Noting that the economic activity is expected to strengthen in FY26, supported by improved external buffers and renewed business confidence following the US-Pakistan trade agreement, the ADB warned that the damage caused to infrastructure and farmland by the recent floods may weigh on growth.

Recovery and rehabilitation efforts, bolstered by fiscal incentives for the construction sector announced in the FY26 budget, are expected to partially offset the adverse impact.

Furthermore, the lender has projected inflation to increase due to the repercussions of flood-related supply chain disruptions on food prices and the increase in gas tariffs.

Meanwhile, it also expects the State Bank of Pakistan to adopt a cautious approach to easing monetary policy to stabilise inflation within its medium-term target range of 5% to 7%.